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Month: December 2017

It is easy to lose patents and trademarks by forgetting to pay their annuity fees. Set up your automatic reminder systems today.

You have just received your US utility patent or trademark, congratulations! But remember that unless you pay annuity fees (maintenance fees) during certain future time windows, your patent or trademark will expire early. No, you can’t pay these fees early. You must wait until the time window opens to pay.

Why do we have this system? IP (Intellectual Property) laws are intended to balance both public and private rights. The underlying idea is that if the IP is really important to you, then you will keep track of the payment windows. If it is not important to you (as evidenced by your forgetting to pay), then the public rights part of the policy kicks in. The IP rights get transferred back to the public.

Utility patents (the most common type of patent) will often have about a 17-20 year term (your mileage may vary), with maintenance fees due during specific time windows at 3-4, 7-8, and 11-12 years after issue. There is no requirement that patents actually have to be used to keep them in effect. So during these time windows, the USPTO will just ask you to affirm that you are authorized to pay, and take your money.

Trademarks have to be renewed during specific time windows at 5-6 and then every 9-10 years (forever) after issue. Unlike patents, trademarks are a “use it or lose it” type of IP. The USPTO, in addition to charging fees, also requires proof of actual use in commerce. They will deny renewal if this proof is absent or unconvincing.

The responsibility for ensuring that these annuity fees are paid ultimately rests with the IP owner. Although some law firms may occasionally send out courtesy reminder notices, such courtesy reminders should not be relied upon.

Instead, consider setting up your own reminder system. At a minimum, enter the dates into at least one (preferably two) long-term electronic calendars or other automatic reminder (docketing) systems, and keep these systems going.

Conley, Twombly, and Iqbal are different standards of proof to successfully initiate patent litigation. This varies between the states. Consider this when incorporating your company.

From the standpoint of patent litigation, “Conley, Twombly, and Iqbal” are attorney speak for how much “meat” a patent infringement complaint must have in order to not get quickly tossed out of court under a motion to dismiss [rule 12(b)(6)]. So if you ever receive a patent infringement complaint, or plan to institute a patent infringement complaint, these names will become important to you.

Historically, it was very difficult for the average person to initiate litigation. In earlier centuries, pleading had to follow strict “code pleading” rules, where even minor defects could cause otherwise good cases to be tossed out of court. In rebellion to this, in the 1930’s, when the modern Federal Rules for Civil Procedure were first established, the thinking was that everyone should be able to have their day in court. To do this, the standards for the initial pleading were set at a low “short plainstatement” level (1957 Conley v. Gibson case). So it didn’t take much to start a Federal lawsuit. The legal theory here was that deficiencies in the initial filing could be easily corrected by subsequent discovery motions. Justice for the masses – this would be great!

Fast forward to 2007 and the legal situation was actually not so great. The Federal courts were clogged with cases. Discovery motions notoriously chewed up large amounts of time and money, sometimes on the basis of initial pleadings that were a bit “thin”.

In the 2007 Bell Atlantic Corp. v Twombly case, the US Supreme Court (SCOTUS) took it upon itself to raise the standards for pleading. As rephrased by SCOTUS in the later (2009) Ascroft v. Iqbal case: “…only a complaint that states a plausible claim for relief survives a motion to dismiss… While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations. When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief. Note the term “plausible”. It means “reasonable” or “believable”. This is where the standards get tightened, because the old standard was “possible”.

In practice, the court will initially assume that the complaint facts are correct, but then examine various alternative scenarios to see if there are plausible alternatives that are legally OK. For example, in the original Twombly case, collusion between telecommunications carriers was alleged. Facts showing that different carriers behaved in a similar manner were given, but no evidence of actual collusion was presented. Here the “plausible” alternative scenario was that each was just independently protecting their own tuff without improper collusion. So the 12(b)(6) motion to dismiss was upheld.

Similarly, prior to Twombly, it did not take much to start a patent infringement lawsuit. Just fill out a “Form 18” giving the patent number, an assertion of infringement, and a few other minor details and this was good enough. In theory, after Twombly, standards should now be higher, but…

So at present, we have a new and interesting situation where a company can apparently lower the risk of patent infringement lawsuits by incorporating in a state where the Federal Courts have higher standards.

For selling patents, try to create a family of commercially useful patents that are hard to design around and legally strong. Know your market!

Although patents are best used to help inventors and startups attract funding and protect their products from copycats, sometimes the barriers to commercialization are just too high. Thus occasionally, alternative patent monetization approaches, such as sales, licensing, or litigation; may be a potential alternative. Here I discuss selling patents in a non-litigation context. Licensing and litigation will be discussed in later articles.

Your patents need to have good commercial potential, or else the game stops right here. The considerations include potential market size, market share, and value added by the patents. The patents have to be “strong” (e.g. not easily invalidated on the basis of prior art, and not have a lot of loopholes).

To understand selling patents, consider the subject from the standpoint of a potential corporate purchaser. With the exception of “blocking patents” (which are relatively rare), for any given single patent, the corporate technologists will usually say “no problem,we can design around it”, and the corporate legal counsel will usually say, “no problem,we will come up with non-infringement/invalidity arguments”. Given this “no problem” input, if there is only one patent, the corporate decision maker will often decide to “risk it”, and if so, there will be no sale.

By contrast, when the corporate purchaser considers multiple patents, the assurances of the technologists and legal counsel decrease. Technologist assurances that “we can design around it” become more guarded. Legal counsel, realizing that it may have to challenge multiple patents, will add up the potential costs and risks of multiple potential court cases, and also be less reassuring. This is why, even for the strongest patents, most patent sales take place in the context of a family of related patents.

Patent valuation, and comparables: Although you may be tempted to put your pinky in your mouth and say “one hundred billion dollars”, market realities should be considered. Just as there are real estate “comps” (average selling prices of houses in a neighborhood) and real estate valuation schemes, so there are “patent comps” and various techniques to measure patent valuation. Corporate purchasers have to justify their expenses to their upper management or their board of directors. This justification becomes harder as the patent price moves outside of typical comps and valuation schemes. So it is important to be aware of these comps and valuation schemes, and set your expectations and negotiating strategies accordingly.

Selling methods: There are various methods of selling patents, including direct corporate deals (the traditional method), online auction sales, sales using brokers, and sales to NPE (non-practicing entities – formerly big, lately less active). As in any financial transaction, it is helpful to try to position yourself to negotiate from a position of strength (e.g. have financial means to walk away from bad deals) and to approach the transaction in an informed manner.